In the first years of the 1990s, violence and crime were rampant in Russian cities. Crime rose by 33 percent from 1991 to 1992, and in 1993, the murder rate increased 27 percent while crimes committed with firearms rose an astonishing 250 percent.[1] The rise in violence was not only from gang-wars, but also from crimes against the new entrepreneurial class. Since the entrepreneurs could not rely on the police for protection, they were easy targets. In 1993, the Interior Ministry recorded 93 known murders of entrepreneurs.[2] Even ordinary Russian citizens became targets. After the government privatized housing, gangs targeted vulnerable owners, such as the elderly or those without families, to gain the valuable new property. In Moscow, from 1992-1997, 20,000 people disappeared after selling their housing- most of whom are believed to have been killed. The gangs bribed building supervisors for the names of good targets, and officials for help with registering the sale, and relied on the fear and indifference of the target’s neighbors to carry out their crimes.[3] The Russian people referred to the lawlessness and moral confusion that the transition created as bespredel, meaning without limits, which reflected the lack of restraint the corrupt officials and bandits had in their greed, and the destruction that they caused.

For most Russians, bespredel was a horrible, dispiriting, condition, but for criminals, it was a fantastic business opportunity. Krysha, or roof, is probably the most important word for explaining how the bandits functioned. Russian law and law enforcement were insufficient for business to carry out normal business functions, such as collecting debt or enforcing contracts, and the police could not, or would not, protect businesses and entrepreneurs from theft or physical harm. In order to avoid these problems, Russian businesses needed a private protection agency, or krysha. According to a Russian government report from 1993, 70-80% of private companies in major cities paid 10-20% of their profits in tribute to organized criminal groups.[4] If a company did not have a roof, they were open to exploitation by any criminal group until they obtained one. However, once a business had a krysha, they could rely on the reputation of that group as a form of deterrence- some gangs even started printing stickers with their names on them so businesses under their protection could put them on their doors to avoid being hassled by other gangs.[5]

Organized criminal groups are rational economic actors whose goals are profit maximization, not violence. Since the market for firms needing protection was so vast, there was little need for the gangs to battle over specific businesses. Also, rather than primarily relying on violence to solve their client’s problems, gangs arranged meetings, or strelkas, to negotiate solutions. A strelka was a form of arbitration where companies in dispute would both send their krysha to negotiate an agreement. The agreement would then become binding for both companies. It was common for the gangs to have several of these meetings daily, and the majority of them ended peacefully. All protection rackets were obligated to go to strelkas to represent their companies, and success depended on each gang’s reputation, as well as the ability to read the situation for potential violence.[6] The Russian Federation had a system of normal arbitration courts that were reasonably well organized and effective at coming to agreements. However, the courts were much less successful at obtaining settlements after rulings due to the ability of the losing party to hide their assets across multiple bank accounts, or to transfer assets to friends and family. A krysha is much more effective at enforcing agreements because they have the capacity to use force in cases of non-compliance.[7]

Many businesses preferred dealing with organized criminal groups instead of the state. Part of the reason was that the criminals took ten to thirty percent of a firm’s profit, but the state took up to ninety percent in taxes and fines.[8] The racketeers were originally only interested in exploiting the businesses, but with so many criminal groups present in the 1990s, the market became competitive. Because of this, businesses could demand more from their private protection agencies. In this way, for most emerging businesses, the criminal groups responded to the demand for order and predictability, and replaced the official law enforcement system. The Russian police were not able to adapt to the new free-market system, and in many cases were too understaffed or corrupt to be effective. It is not surprising that the New Russia Barometer survey found that in 1994, seventy-one percent of Russians distrusted state institutions, and seventy percent distrusted the police specifically.[9]

The role of the bandits as violent entrepreneurs who provided services to firms is distinct from the traditional criminal activities of the vory that came before them. This divergence first started during the perestroika economic reforms under Gorbachev, when in 1988 the new law on cooperatives allowed limited private enterprise.[10] The Vory are thieves and smugglers, so they depend on the ability to be inconspicuous to carry out their work, whereas the bandits depend on developing a reputation for both the ability to settle disputes and carry out acts of violence if necessary. This difference even manifests itself in outward appearances. The Vory should be able to blend into their environment, and since the Vory v Zakone are in charge of managing the group’s communal funds, if they conspicuously show wealth it will cast doubt on their reliability. However, for the bandits, conspicuous shows of wealth, or physical strength from bodybuilding, actually benefits their reputations and ability to conduct business. In addition, the two groups play different roles in the economy. Unlike the bandits, the Vory do not produce anything, or establish long-term mutually beneficial relationships with clients.[11]

The rise of the bandits mirrors the rise of Russian capitalism because the Russian state was unable to adapt its institutions to the new system as quickly as it adopted radical new reforms. The Vory thrived as thieves and smugglers during the Soviet times because the communist economy was not efficient in producing and allocating goods that Russian consumers wanted. The strict rules of the thieves’ code left the Vory ill suited to adapt to the new criminal world of the transition period. The bandits considered Vory tradition an irrelavent relic of the past. Even the authority of the vory v zakone weakened under the new circumstances of bespredel- instead of earning it through long prison stays and formal rituals new criminals were simply buying the title. The new circumstances were best suited for what sociologist Vadim Volkov defined as “violent entrepreneurs,” groups that specialize in the use of force to make money on a reoccurring basis.[12] The bandits violent entrepreneurship filled an institutional gap that both the traditional criminal elite and the new Russian Federation were unable to, and despite their violence, provided a degree of stability necessary for the establishment of Russian capitalism.[13]